Sunday, December 28, 2008

A story in the NY Times has a striking photo of a private home in Seattle located in a niche in a large commercial building. The large building had to be built around the small one after developers were unable to convince the owner to sell them the last piece of land they needed to build a conventional, rectangular building.

Governments, unlike private developers, have the right of eminent domain, which allows them to compel landowners to sell their land for public purposes. The idea is that some public projects, like highways, would be difficult or impossible to complete if each plot of land on the proposed route would have to be acquired on the private market before a road could be built. Eminent domain is meant to solve the coordination problem involved in assembling a large landholding (since there are seldom large, road-shaped plots of land vacant where new roads would be useful in populated places). It is also meant in part to solve the "holdup problem" associated with the fact that, once a large tract of property has been assembled, the missing pieces have very high marginal value, so that the last properties needed for a large project would become especially difficult or costly to acquire.

Governments can use eminent domain for private projects that they take to be in the public interest, e.g. not just highways, but privately owned railroads also. Recently the State of New York agreed to use eminent domain to acquire the last plots of land for Columbia University to expand its campus north of its current Manhattan location, on land that Columbia had mostly assembled over years of private acquisition.

Harvard acquired land in the Allston neighborhood of Boston in the 1990's, without eminent domain, by buying lots secretly, through a third party, as they became available. The thought was that the last lots would have become very expensive if it became known that Harvard was purchasing land for a large project.

Update: Steve Leider urges me to include the recent expansion of eminent domain authority to include more strictly private projects. He writes:

"You probably ought to mention the Kelo decision (http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London ) which substantially expanded what counts as "for a public purpose" in terms of using eminent domain for a private project - basically increased tax revenue counts. The decision is very controversial, since it basically allows ED for just about anything, and many are worried that developers will try to wield influence with lawmakers to get ED invoked. There was lots of discussion at the time on law blogs like volokh.com (here are some of their recent posts on the subject http://volokh.com/posts/chain_1201469127.shtml )"